ConclusionIn February ’14 KING has 140 million unique users, and the IPO is only 7% of the indicated market capitalization at the price range mid-point.

This is reminiscent of the social networking stocks of 2011.

Except KING is profitable. However, several important metrics declined in the December ’13 quarter vs the September ’13 quarter.

KING is basically a one hit wonder, although it’s not all Candy Crush, which accounted for 69% of February’s unique user traffic to KING.

Annualizing the December ’13 quarter, KING’s P/E ratio is 11.1.

30% of the IPO is from selling shareholders. The rating is buy.

Business
KING is a leading interactive entertainment company for the mobile world.

Recently launched KING games. Bubble Witch Saga on mobile in July 2012, followed by Candy Crush Saga in November 2012, Pet Rescue Saga in June 2013, Papa Pear Saga in November 2013 and Farm Heroes Saga in January 2014.

In February, 2014 69% of KING’s daily average users came from the Candy Crush game.

KING has been developing and publishing online casual games since 2003.

Daily Average Users (DAU)
In December 2013, an average of 128 million DAUs played KING’s games more than 1.2 billion times per day.

In February 2014, an average of 144 million DAUs played KING’s games more than 1.4 billion times per day.

Revenue
KING generates revenue primarily through sales of virtual items by means of microtransactions, where certain of KING’s users pay for items and features that enhance their entertainment experience, such as extra lives, boosters and additional game content.

HistoryFollowing its formation, KING became a leading game portal, developing and publishing proprietary games in a tournament format through KING’s website, as well as distributing its content on other leading web portals of the time, such as AOL, MSN and Yahoo!.

In recent years, as the market has shifted materially to mobile and social platforms, KING has embraced new distribution channels for its games such as the Apple App Store, the Google Play Store, Facebook, the Amazon Appstore and KakaoTalk and by doing so has significantly expanded its reach and market opportunity.

Today, the majority of KING’s users now access its content through their mobile devices, a trend that continues to grow.

Game development
During the last decade, KING has developed a proprietary catalog of more than 180 game IPs across a wide range of casual sub-genres, which KING continues to grow. KING uses a well-practiced, low-cost, low risk process for game development where KING has typically developed a new game IP with a team of three people in 20 weeks.

KING launches new game IPs on its royalgames.com website, where KING receives rapid feedback from its core user base of VIP customers.

KING then identifies the games that it believes have the highest potential, based on deep performance analytics and its historical experience, and enhance them with additional features and capabilities in KING’s Saga format before releasing them on other leading distribution channels, such as the Apple App Store, the Google Play Store, the Amazon Appstore and Facebook.

Dividend Policy
Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of KING’s board of directors and will depend on then existing conditions, including KING’s financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors its board of directors may deem relevant.

KING paid a $287 million dividend October 24, 2013, and a $217 million dividend February 6, 2014.

Intellectual PropertyWhere appropriate, KING pursues the registration of designs, copyright, domain names, trademarks and service marks in the EU, United States and in other jurisdictions.

In addition, KING has made several registrations for its copyrights in the United States, and registrations for designs in the EU. KING’s trademarks in the EU, United States and elsewhere relate to its corporate King brand, its game names, app icons and game elements where appropriate.

KING also owns more than 30 granted patents in the United States and elsewhere. While most of the intellectual property KING uses is created by KING, KING has, in some cases, acquired certain rights to proprietary intellectual property from others.

Competition
KING faces competition from a number of competitors that develop games on social networks, mobile, PC and consoles, some of which include features that compete with its casual games and have community functions in which game developers can engage with their players.

Many new developers enter the gaming market on a regular basis, some of which see significant success in a short period of time.

Additionally, KING could face increased competition if large companies with significant online presences, such as Amazon.com, Inc., Apple, Inc., Facebook, Inc., Google Inc., The Walt Disney Company or Yahoo! Inc., choose to enter or expand in the games space or develop competing games.

Use of proceeds30% of the IPO is from selling shareholders. KING expects to net $326 million from its IPO. Proceeds are allocated as follows:

for working capital and other general corporate purposes, which may include acquisitions. KING has not allocated any specific portion of the net proceeds to any particular purpose, and KING’s management will have the discretion to allocate the proceeds as it determines. Pending these uses, KING intends to invest the net proceeds from the offering in short-term, investment-grade, interest-bearing instruments.

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